STREET DOGS

SUCCESSFUL investing effectively requires three elements. The first is highlighted by the legendary hedge fund manager Michael Steinhardt, who urged investors to have the courage to be different. “The hardest thing over the years has been having the courage to go against the dominant wisdom of the time, to have a view that is at variance with the present consensus and to bet on that view,” he said.

The second element is to be a critical thinker. As Joel Greenblatt opined, “You can’t be a good value investor without being a critical thinker – you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing those values.”

Finally, you must have the perseverance and grit to stick to your principles. As Ben Graham noted, “If you believe that the value approach is inherently sound then devote yourself to that principle. Stick to it, and don’t be led astray by Wall Street’s fashions, illusions and its constant chase after the fast dollar. Let me emphasise that it does not take genius to be a successful value analyst, what it needs is, first, reasonably good intelligence; second, sound principles of operation; and third, and most important, firmness of character.”

Only by mastering all three elements will you be able to stand against the herd and reap the resultant investment returns. — James Montier, The Little Book of Behavioural Investing

“The central principle of investment is to go contrary to the general opinion on the grounds that if everyone agreed about its merits, the investment is inevitably too dear and therefore unattractive.” — John Meynard Keynes

Michel Pireu — e-mail: pireum@streetdogs.co.za